State and Local Government Unions: Eating Their Young?

DJH: Recently, I have started to dig deeper into the details of excessive government spending. As often happens, when you look more closely at something, you see things you missed the first time. In this case, there is something very interesting happening within the bowels of careers inside the US Government job sector.

The New Gallup Poll: “Tale of Two Cities”

My friend Angel Fleming just sent me a Gallup poll that reveals a huge disparity between hiring in the Federal Government sector and hiring in the State/Local Government sector; take a look:

First, it may look good that only 19% of private sector employers are still letting people go; less than any government sector. But before you jump to the conclusion that the private sector is suddenly doing better than the government class, keep in mind that this has pretty much been a private sector recession. Unemployment in the private sector has been well over 10% for a year, while unemployment in the government class sits at 3.9%; a figure considered “Full Employment” by most economists.

Second, while 22% of federal government workers say their employers are letting people go, 40% say they’re hiring!

Third, the picture in state and local government is pretty bleak; only 14-16% are adding staff, while 42% are laying people off — this is not a happy picture. It’s the polar opposite of what’s going on in Washington DC and actually worse than the private sector (notwithstanding the 3.9% unemployment rate across all government job sectors).

When I see a disparity like this, I want to know more, so I asked around to see what was going on beneath the surface…

The Food Chain(s)

The Feds -- King of Government Hiring

To understand this dynamic, you have to first look at what’s going on inside each level of government and see how they effect one another.

The Fed: Clearly, the only thing holding the federal government back from spending like there’s no tomorrow is the fiscal discipline of their chief executive — Barrack Obama. Since we know he has none, it’s no surprise that the federal government has become the “Great White Shark” of unlimited hiring. Clearly the feds sit at the top of the food chain. They have no shame when it comes to taking care of their own and zero remorse about bankrupting the national treasury to keep the party going.

The States: Unlike the feds, the States can’t simply print money or load up our grandkids with debt to feed their hiring addiction. In fact, they can’t support themselves on their own state income and property taxes; they depend on Washington DC for hand-outs. Massachusetts balanced their budget this year, thanks in large part to the fact that MA Governor Deval Patrick is old buddies with Barrack Obama and BO slipped him $1.5 billion in stimulus money. On the other hand, California, which is run by a so-called republican — Arnold Schwarzenegger — has received no such bail-out and has been forced to lay off teachers, close prisons, and raise college tuition. Despite this, the California state budget is in a hopelessly deep hole. Generally, the states must balance their budgets, or at least their cash flows, so right now they are cutting programs, raising taxes/fees, and in some cases laying off workers.

The Locals: At the bottom of the government food chain lies local governments. Most of these places get their money from the state through some formula that is subject to manipulation by statehouse politicians. Turn on the local news and you’ll learn all you need to know about these poor grubs. The recession has hurt local sales tax collections and the state governments are cutting back on “local aid” to save their own. In most cities and towns across America, local government spending has been cut back almost as much as the private sector (but not quite).

Government Unions Eating Their Young

Beyond all this, there is something very insidious going on within state and local governments. After years of corruption as democrat politicians gave unions everything they wanted and in return, the unions funded every democrat’s re-election campaign, many of the so-called “Blue States” now find themselves “Dead States Walking.” They are overloaded with unfunded pension obligations for government union workers that they can’t get out of (unless they declare bankruptcy — which they will). So, instead they’re laying off younger workers who don’t have the same union protection. I’ve seen fire departments in Massachusetts where the majority of firefighters are too old to climb a ladder and fight a fire because the rookies were laid off to protect their pensions.

The Backlash

Before I even publish this story, I know that a few of my loyal readers will cite this as another reason why things are totally hopeless. While I do agree that this train is on a one way track, I do not agree that this means all is lost. I think this mess will eventually “cleanse” itself; here’s how:

The Truth is Coming Out: In New Jersey, Governor Chris Christie and been very outspoken about just how “upside down” these pension schemes are. One of the examples he cited was a state worker who was able to retire at the age of 49 with a pension worth $3.8 million after only contributing $124,000 during his working years. He has pretty much declared war on this problem, regardless of the political consequences. I think examples like this will draw the people of NJ to support Christie’s initiatives. Frighteningly, this example is the rule, not the exception. As this story gets out, I think many US governors will be forced to follow Christie’s lead or get tossed out of office.

The Problem is Snowballing Out of Control: These silly unfunded pensions are starting to consume a huge share of all of taxes collected at the state and local level. The Sacramento Bee recently reported: “15 percent to 30 percent of local governments’ annual payroll goes into their pension system – a quarter or so for every dollar spent on paychecks.” Not only that, but the share of local budgets consumed by fat pension plans is growing like crazy. The Sacbee also reported: “Fresno County expects to pay more than $140 million into its pension system next fiscal year – up 13 percent from this year. According to a recent report, that contribution requirement is likely to grow during the next four years” (full story).

The Pain is Becoming Severe: When you add the voracious spending increases consumed by government pensions, with the reduced tax collections due to the recession, state/local governments have no choice but to cut back elsewhere. The Sacbee story also reported: “The total number of Fresno County employees dropped by 700, or 10 percent, from 2008 to 2009, financial audits show. The county drastically cut its mental heath services budget, reducing care for the homeless and indigent, and, like many other places, it released a slew of jail inmates.“The net effect of all of these cutbacks will soon become real pain to younger government workers (who do not have the sweet pensions) and others who depend on the government for consulting fees, hand-outs, or other entitlements.

When this happens, I predict that a new protest group will emerge. The younger government workers and dependents who get the short end of the stick will part company with the old union gang and start looking out for themselves. This will put more pressure on leaders to reign in fat union pensions. And who knows, this new group may even join with private sector groups like The Tea Party to reign in the excesses of government.